Loan Modifications: Determining What Programs

are Available

Joseph Rebella Senior Staff Attorney MFY Legal Services, Inc.

Different Loan Modification Programs

• The availability of loan modification programs depends on the insurer, investor and servicer.

• To determine what workout programs are available, the counselor should determine whether or not the loan is (1) an FHA-insured loan, (2) held by Fannie Mae or Freddie Mac, (3) serviced by a company that participates in Making Home Affordable (MHA) or (4) none of the above.

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FHA Loans

• FHA is the Federal Housing Administration, which is a branch of HUD.

• Loans insured by FHA are serviced according to FHA’s loss mitigation rules - which are described in the resource guide and in the FHA User’s Guide on MFY’s website.

• You can tell that a loan is an FHA loan by looking at the mortgage, which will have an FHA Case Number on the first page.

• Also, if the mortgage statement includes a charge for MIP or FHA Insurance.

Fannie Mae/Freddie Mac Loans

• Fannie Mae and Freddie Mac are both Government Sponsored Entities (GSEs) that own and insure mortgage loans. GSE loans must be serviced according to detailed guides set forth by the relevant GSE.

• Determine whether the loan is a Fannie or Freddie loan by using the GSEs’ websites to look up the mortgage.

• Freddie Mac’s and Fannie Mae’s lookup tools are available at http://www.freddiemac.com/mymortgage and https://knowyouroptions.com/loanlookup, respectively. Both loan lookup tools require the borrower’s name, address and the last four digits of his or her Social Security Number.

• The online lookup tools are not always accurate.

• GSE Loans are eligible for HAMP and Standard Modifications.

MHA Servicers

• Certain companies have agreed to participate in HAMP even for non-GSE loans.

• A list of companies that have agreed to participate is available here: http://www.makinghomeaffordable.gov/get-assistance/contact-mortgage/Pages/default.aspx.

• Loans serviced by participating servicers are eligible for HAMP and HAMP Tier 2.

• Notable exceptions to MHA participation include HSBC and Caliber.

• If the loan doesn’t meet any of these criteria – i.e. not FHA, not GSE, not MHA – then the servicer may still have an in-house modification program.

Non-Economic Criteria For Modifications

• Each program has both economic and non-economic criteria. The economic criteria are more complex and change more often – the economic criteria for each program are described in the resource guide.

• The non-economic criteria are easier to determine. In this presentation, we’ll discuss:

• Origination Date

• Owner Occupancy

• Prior Modification

• Prior Trial Plan Default

• Additionally, every program is limited to 1-4 unit residential properties.

Origination Date Restrictions

The origination date is the date that the loan was made. It refers to the original date of the mortgage (including a consolidation if the mortgage arose from a consolidation). It does not refer to a modification date, if there was a prior modification.

Origination date requirements:

• HAMP – on or before January 1, 2009

• HAMP Tier 2 – on or before January 1, 2009

• GSE Standard Modifications – at least 12 months prior to evaluation

• FHA – at least 12 months prior to evaluation, and borrower must have made at least 4 payments.

Owner Occupancy Restrictions

• HAMP – must be owner occupied (unless displacement due to military service).

• HAMP Tier 2 – may be owner occupied, family occupied, or a rental (may be vacant if available for rent); may not be a vacation home, second home or abandoned.

• GSE Standard Modifications – any property that is not abandoned or condemned.

• FHA – must be owner occupied.

Prior Modification Restrictions

• Re-defaults on prior modifications are becoming increasingly common

• Effect of a prior modification: • FHA-HAMP: must have been at least 24 months since the last modification.

• HAMP: cannot have had a prior HAMP or a prior HAMP Tier 2 – prior GSE Standard Modification is fine. Cannot have had a prior HAMP on any other property, as well (even if the borrower has moved).

• HAMP Tier 2: cannot have had a prior HAMP Tier 2 modification – prior HAMP modification is fine.

• GSE Standard Modification: maximum of two previous modifications of any sort.

Prior Trial Plan Default Restrictions

• Default on a trial plan (TPP) may affect rights to future modification. A borrower does not default on a trial plan if the borrower (1) makes all the trial plan payments, but does not receive a permanent modification, (2) makes all the trial plan payments, but does not accept the permanent modification, or (3) doesn’t make any of the trial plan payments.

• Effect of a prior trial plan: • FHA-HAMP: must show a change in circumstances.

• HAMP: cannot have had a TPP default under HAMP or HAMP Tier 2 – prior GSE Standard Modification TPP default is ok.

• HAMP Tier 2: cannot have had a prior HAMP Tier 2 TPP default.

• GSE Standard Modification: must not have failed a GSE Standard Modification TPP in the last 12 months.